Employer Payment Plans…IRS Fines Begin July 1, 2015

Jun 15

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6/15/2015 10:15 AM  RssIcon

An important compliance deadline is quickly approaching. For companies that terminated their group health plan and enrolled their employees in individual policies, the IRS has made it clear that employers could not directly pay employee’s individual premiums or reimburse employees for their individual premiums. The IRS considers such an arrangement to be an Employer Payment Plan and will begin imposing substantial fines for such an arrangement beginning July 1st. To avoid such fines, a company can provide any remuneration to their employees upon plan termination, if done so in the form of a fixed taxable healthcare stipend that is not predicated on the purchase of health insurance.

See the following from a recent IRS publication

Question 4 (Increases in employee compensation to assist with payments of individual market coverage): If an employer increases an employee’s compensation, but does not condition the payment of the additional compensation on the purchase of health coverage (or otherwise endorse a particular policy, form, or issuer of health insurance), is this arrangement an employer payment plan?

Answer 4: No. As described in Notice 2013-54, an employer payment plan is a group health plan under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy or directly pays a premium for an individual health insurance policy covering the employee, such as arrangements described in Rev. Rul. 61-146. The arrangement described in this Q&A-4 does not meet that description. In addition, because the arrangement described in this Q&A-4 generally will not constitute a group health plan, it is not subject to the market reforms. Providing employees with information about the Marketplace or the premium tax credit under Code § 36B is not endorsement of a particular policy, form, or issuer of health insurance.

It’s important to note that if for some reason a company is providing anything that looks like an Employer Payment Plan, it’s critical to end this practice before July 1st. Failure to do so can result in a fine of $100 per employee per day or $36,500 per year from the IRS. This does not impact the deductibility of individual premiums for self-employed individuals such as owners of an LLC or S-Corp. In most circumstances these reimbursements are still legal and deductible. Check with your CPA to learn more.


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